Malaysia Airlines (MAS) unveiled yesterday, July 30, 2002 a new business model that would accelerate its return to profitability a year earlier than previously estimated. It is now aiming for a modest profit of MYR 94 million (USD 24.7 million) for the financial year to March 21, 2003 after five year of massive losses.

After the exercise, MAS will:
- Operate international passenger & cargo (domestic and international) services
- Operate domestic routes on behalf of the government for a fee - for the government, which would assume responsibility for any future profit or loss on these domestic routes.
- Remain listed on the Kuala Lumpur Stock Exchange (KLSE)

Let's take stock of what is happening.... This is by no means comprehensive and purely my opinion.

The Good:
(1) Makes MAS' balance sheet look "cleaner" by removing depreciating assets and debt payments. Some additional liabilities are added though, in the form of lease payments
(2) MAS is not exposed to fluctuations in value of used aircraft
(3) MAS has fixed lease payments - both on the land and the planes. This adds a measure of certainly, helps them to manage cash flow and expenses better.
(4) With the removal of debt payments, earnings per share will probably go up.
(5) MAS will no longer be responsible for losses on domestic routes. They will get payments from PMB no matter what costs and revenues are going to be. Again this adds a certain measure of certainty.
(6) MAS gets another cash injection from the sale of their catering unit, property and other assets.

The Bad:
(1) How deep are PMB's pockets going to be - they are taking on a lot of debt and risk, especially with the domestic operations and fluctuating value of used aircraft.
(2) How "arms length" will the two firms be when PMB owns such a large chunk of MAS?
(3) Other shareholders' stakes will be diluted.

The Ugly:
It brings more players into the fray, and those players are government-linked. For many airlines, that isn't a good thing as it compromises their independence and decision-making.

My personal conclusion: A creative solution that resolves some immediate- and intermediate-term problems by transferring risk away from MAS. Long-term problems aren't necessarily resolved, though... these include accountability and proper (rational) decision-making. Those are the issues that need to be tackled urgently.